UNITED STATES

Form 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended April 3, 2004

Commission file number 0-6072

EMS TECHNOLOGIES, INC.

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [  ]

     The number of shares outstanding of each of the issuer’s classes of common stock, as of the close of business on May 7, 2004:

AVAILABLE INFORMATION

EMS Technologies, Inc. makes available free of charge, on or through its website at www.ems-t.com, its annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the Securities and Exchange Commission. Information contained on the Company’s website is not part of this report.

Table of Contents

PART I

FINANCIAL INFORMATION

ITEM 1. Financial Statements

EMS Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)

See accompanying notes to interim consolidated financial statements.

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EMS Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(in thousands)

See accompanying notes to interim consolidated financial statements.

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EMS Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited), continued
(in thousands, except share data)

See accompanying notes to interim consolidated financial statements.

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EMS Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

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EMS Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
April 3, 2004 and March 29, 2003

1. Basis of Presentation

The consolidated financial statements include the accounts of EMS Technologies, Inc. and its wholly-owned subsidiaries LXE Inc., EMS Holdings, Inc. and EMS Technologies Canada, Ltd. (collectively, “the Company”). In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments necessary for a fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. Certain prior period financial statement balances have been reclassified to conform to the current period’s classification. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company has classified the revenues, expenses and related assets and liabilities of its Space & Technology/Montreal division, which are currently held for sale, as discontinued operations for all periods presented in the accompanying consolidated financial statements.

— Stock Option Plans

Prior to January 1, 1996, the Company accounted for its stock option plans in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, “Accounting for Stock-Based Compensation,” which permits entities to recognize as expense, over the vesting period, the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net earnings and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure required by SFAS No. 123.

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The Company has adopted SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” including the interim reporting requirements. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value method to measure stock-based compensation (in thousands, except net earnings per share):

2. Discontinued Operations

In the third quarter of 2003, EMS announced that its Board of Directors had approved a formal plan to sell the Company’s commercial space operations located in Montreal. During the fourth quarter of 2003, the Company completed the sale of its healthcare product line. As a result, these business components are accounted for as discontinued operations, and the net assets held for sale were written down to their estimated fair value upon disposal. The fair value of the Space & Technology/Montreal division upon disposal was estimated in Canadian dollars using an expected present value technique and a discount rate of 20%. A 2% change in the discount rate would cause a change in the valuation of approximately $1.5 million.

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The results of these discontinued operations for the first quarter of 2004 and 2003 were as follows (in thousands):

The table below presents the components of the balance sheet accounts classified as current assets and liabilities related to assets held for sale as of April 3, 2004 and December 31, 2003 (in thousands):

3. Derivative Financial Instruments

The Company uses derivative financial instruments (forward exchange contracts) to hedge currency fluctuations in future cash flows denominated in foreign currencies, thereby limiting the Company’s risk that would otherwise result from changes in exchange rates. The Company has established policies and procedures for risk assessment and the approval,

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reporting and monitoring of derivative financial instrument activities. The Company does not enter into derivative financial instruments for trading or speculative purposes.

SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, requires the Company to recognize all derivatives on the consolidated balance sheet at fair value. Under SFAS No. 133, certain of the Company’s routine long-term contracts are considered to be derivative instruments, because these contracts create long-term obligations for non-U.S. customers to pay the Company’s Canadian subsidiary in U.S. dollars. Changes in the fair values of these embedded derivatives are included in current earnings.

For continuing operations, the derivative activity as reported in the Company’s consolidated financial statements during the first quarters ended 2004 and 2003 was (in thousands):

For discontinued operations, the net liability for derivatives at April 3, 2004 was $25,000 compared to a net asset of $784,000 at March 29, 2003.

All of the foreign currency contracts currently in place will expire by the end of 2004.

4. Earnings Per Share

Basic earnings per share is the per share allocation of income available to common stockholders based only on the weighted average number of common shares actually outstanding during the period. Diluted earnings per share represents the per share allocation of income attributable to common stockholders based on the weighted average number of common shares actually outstanding plus all dilutive potential common shares outstanding during the period.

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The Company has granted stock options that are potentially dilutive to basic earnings per share, summarized as follows (shares in thousands):

For each earnings per share calculation reported for the first quarters of 2004 and 2003, the numerators were the same as reported in the consolidated statements of operations. Following is a reconciliation of the denominators for basic and diluted earnings per share calculations for the first quarters ended April 3, 2004 and March 29, 2003 (in thousands):

5. Comprehensive Income

Following is a summary of comprehensive income (in thousands):

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6. Trade Accounts Receivable

Trade accounts receivable include the following (in thousands):

7. Inventories

Inventories include the following (in thousands):

8. Interim Segment Disclosures

The Company has five reportable segments: Space & Technology, LXE, EMS Wireless, SATCOM and SatNet. Each segment is separately managed and comprises a range of products and services that share distinct operating characteristics. The Company evaluates each segment primarily upon operating income.

The Space & Technology segment manufactures custom-designed, highly engineered hardware for use in advanced communications, primarily for the defense market. Orders in this segment typically involve development and production schedules that can extend a year or more, and most revenues are recognized under percentage-of-completion long-term contract accounting. Hardware is sold to prime contractors or systems integrators rather than to end-users. As a result of the planned sale of the Space & Technology/Montreal division, the results of operations and all other financial information related to the Space & Technology/Montreal division is reported in discontinued operations. The Space & Technology segment reflects the results of operations and all other financial information related to the Space & Technology/Atlanta business.

The LXE segment manufactures rugged mobile computers and wireless local area network (“WLAN”) products for use throughout the supply chain. The manufacturing cycle for each order is generally just a few days, and revenues are recognized upon shipment of hardware. Hardware is marketed to end-users and to third parties that combine their products and services with the Company’s hardware for delivery to end-users.

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The EMS Wireless segment manufactures antennas and repeaters for PCS/cellular communications systems. The manufacturing cycle for each order is generally just a few days, and revenues are generally recognized upon shipment of hardware. Hardware is marketed to wireless service providers and to original equipment manufacturers (“OEMs”) for mobile voice/paging services, as well as for other emerging high-speed wireless systems.

The SATCOM segment manufactures antennas and other hardware for satellite communications systems. The manufacturing cycle for most orders is generally just a few days, and revenues are recognized upon shipment of hardware. The SATCOM segment also has orders that involve development and production schedules that can extend a year or more, and these revenues are recognized under percentage-of-completion long-term contract accounting. Hardware is marketed to third parties that combine their products and services with the Company’s hardware for delivery to end-users.

The SatNet segment manufactures ground segment equipment for the satellite broadband communications market. The manufacturing cycle for a hub is generally several weeks and terminals are manufactured on a shorter cycle. Revenues are recognized upon shipment of hardware. Hardware is marketed to operators of high-speed, two-way, multimedia access networks.

Following is a summary of the Company’s interim segment data (in thousands):

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9. Warranty Liability

The Company provides a limited warranty for each of its products. The basic warranty periods vary from one to five years, depending upon the type of product. For certain products, customers can purchase warranty coverage for specified additional periods.

The Company records a liability for the estimated costs to be incurred under warranties. The amount of this liability is based upon historical, as well as expected, rates of warranty claims. The warranty liability is periodically reviewed for adequacy and adjusted as necessary. Following is a reconciliation of the aggregate product warranty liability for the quarters ended (in thousands):

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes included in Item 1 of Part 1 of this quarterly report and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2003.

Overview:

EMS Technologies, Inc. (the “Company” or “EMS”) designs, manufactures and markets products that are important in many kinds of wireless communications. The Company focuses on the needs of the mobile information user, with an increasing emphasis on broadband applications for high-data-rate, high-capacity wireless communications.

The Company is organized into five reportable business segments: Space & Technology, LXE, EMS Wireless, SATCOM and SatNet. Each segment is separately managed and comprises a range of products and services that share distinct operating characteristics. However, the Company believes that one of its competitive strengths is the technological and marketing synergy that occurs among the segments, as well as among the Company’s various product lines. The Company believes that this synergy creates a path to broader markets for highly advanced technologies developed for niche markets in space and defense. EMS has its principal office in Atlanta, Georgia, and has approximately 1,700 employees worldwide. Over 70% of the Company’s employees are directly involved in engineering or manufacturing activities.

Following is a summary of significant factors affecting the Company in the first quarter of 2004:

For continuing operations:

•

First quarter consolidated sales were higher but operating profits were lower in 2004 than 2003 due to a combination of factors: (1) less favorable foreign exchange rates in 2004 increased the reported cost of our international selling, marketing and administrative efforts; and (2) we launched a planned increase in research and development expenditures beginning in the second half of 2003 and continuing into 2004.

•

The rates of orders in 2004 for our EMS Wireless antennas for wireless telecommunications and our SATCOM systems for mobile communications have been somewhat below our expectations; however, subject to the uncertainties and risk factors discussed elsewhere in this report, we believe that the rates of orders for these segments will significantly increase during the remainder of the year.

•

Non-operating income included a $938,000 pre-tax gain for the sale of unutilized real estate in Montreal.

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		For discontinued operations:
•		We continue to pursue our plans to sell our Space & Technology/Montreal division, and communicate with potential purchasers.

•

These discontinued operations reported their first profitable quarter in over a year due mainly to higher revenues, and also to accrual of government incentives for research.

Discontinued Operations

Our Space & Technology/Montreal division and healthcare product line have been classified as discontinued operations. During the fourth quarter of 2003, we completed the sale of our healthcare product line, and the net assets held for sale of the Space & Technology/Montreal division were written down to their estimated fair value upon disposal. The fair value of the Space & Technology/Montreal division upon disposal was estimated in Canadian dollars using an expected present value technique and a discount rate of 20%. A 2% change in the discount rate would cause a change in the valuation of approximately $1.5 million. The Company continues to pursue its plan of sale for the Space & Technology/Montreal division, and communications are ongoing with several potential purchasers. Under the present circumstances, management believes that it is appropriate to continue accounting for the Space & Technology/Montreal division as discontinued operations.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S., which often require the judgment of management in the selection and application of certain accounting principles and methods. We consider the following policies to be the most critical to understanding the judgments that are involved and the uncertainties that could affect our results of operations, financial condition and cash flows.

Revenue recognition on long-term contracts

Revenue recognition for fixed-price, long-term contracts in the Company’s Space & Technology/Atlanta and SATCOM segments, as well as the Space & Technology/Montreal division currently held for sale, is a critical accounting policy involving significant management estimates. These segments’ long-term contracts use the ratio of cost-incurred to total-estimated-cost as the measure of performance that determines how much revenue should be recognized (percentage of completion accounting). The determination of total-estimated-cost relies on engineering estimates of the cost to complete the contract, with allowances for identifiable risks and uncertainties. These engineering estimates are frequently reviewed and updated. However, unforeseen problems can occur to substantially reduce the rate of future revenue recognition in relation to costs incurred. As of April 3, 2004, the Company had recognized a cumulative total of $24.2 million in revenues under percentage of completion accounting, but which revenues were unbilled as of that date due to the billing milestones specified in the respective customer contracts.

During the preceding year, two large contracts in discontinued operations that were accounted for under percentage of completion accounting experienced technical and supplier difficulties, resulting in increases to the estimated cost at completion totaling over $38 million. The Company has provided reserves for identified risks that could cause cost

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increases in the future. These contracts are technically challenging and there is a risk that further unforeseen difficulties could cause increases to the cost at completion that exceed the Company’s provisions, resulting in further losses associated with these contracts.

Accounting for government research incentives

Our accrual of provincial research incentives is a critical accounting policy involving management estimates for our Montreal-based operations, including the Space & Technology/Montreal division currently held for sale. These incentives are in the form of a cash reimbursement for a portion of certain qualified research expenditures. Incentives are recorded as a reduction of cost of sales, because the underlying research efforts primarily apply to development of technological capabilities for specific business opportunities. For the three months ended April 3, 2004, total incentives earned were approximately $1.3 million, compared with $621,000 for the three months ended March 29, 2003. We have established procedures to identify qualified costs and to submit appropriate claims for reimbursement; all of these claims are subject to financial and scientific audits by the Canadian government concerning whether certain expenses qualified for incentive programs. Although there have historically been no significant disallowances of previously accrued incentives that resulted from these audits, such disallowances in the future would have an unfavorable effect on our statement of operations.

Evaluation of long-lived assets for impairment

All long-lived assets on the consolidated balance sheet are periodically reviewed for impairment. To test recoverability, we estimate the cash flows expected to result from the long-lived assets under several different scenarios, including the potential sale of assets, as well as continuing to hold the assets under several different kinds of business conditions. No long-lived assets classified as held and used were determined to be impaired as of April 3, 2004.

In the third quarter of 2003, the assets of the Space & Technology/Montreal division and the healthcare product line were reclassified from “assets held and used” to “assets held for sale.” As a result, these business components were accounted for as discontinued operations, and the net assets held for sale were written down to their estimated fair value upon disposal. The fair value of the Space & Technology/Montreal division upon disposal was estimated in Canadian dollars using an expected present value technique and a discount rate of 20%. A 2% change in the discount rate would cause a change in the valuation of approximately $1.5 million.

Establishment of reserves for deferred income tax assets

It is management’s current expectation that our Canadian operations will earn more than enough research-related tax benefits each year to offset any Canadian federal tax liability for any given year. As a result, we have reserved substantially all the net deferred tax assets associated with these research-related tax benefits (totaling approximately $33 million at April 3, 2004), because they are unlikely to be realized. However, this reserve may be reduced – resulting in an income tax benefit to a future consolidated statement of operations – if: (1) our profitability in Canada increases, which would increase the tax liability incurred in future years, or (2) the level of our qualified research in Canada decreases, which would

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lower the tax benefits earned in future years.

Results of Operations

Net Sales

Consolidated net sales increased to $64.1 million in the first quarter of 2004, compared with $55.7 million in the first quarter of 2003. All divisions had net increases from the prior year except for our SATCOM division. The largest increases were in EMS Wireless, LXE and SatNet.

Net Sales and Operating Income (Loss) by Segment

Our segment net sales and operating income (loss) were as follows (in thousands):

Space & Technology: This segment primarily serves defense markets, however, net sales in 2004 were higher than in the same period in 2003 due to increased revenues from a program to supply antennas for commercial broadband communications. The gross margin as a percentage of sales increased due to productivity gains on several current programs.

LXE: Net sales in 2004 were higher than in 2003 due to stronger international revenues, particularly from increased hardware unit sales and service revenues in our European markets. Management attributes the growth of LXE’s international revenues to the competitive strength of our products’ performance, service and support, as well as to the continued strong purchasing power of foreign currencies against the U.S. dollar. In addition,

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2004 domestic revenues for the first quarter were also somewhat higher than for the same periods in 2003.

EMS Wireless: Net sales increased in 2004 compared with 2003 as a result of stronger unit sales of base station antennas mainly in the U.S. This revenue growth reflected broad improvement in the level of system expansion activity by wireless service providers in 2004 compared with early 2003.

SATCOM: Net sales decreased slightly in 2004 compared with 2003, because a large order that was planned for the first quarter (potential Q1 revenue contribution of more than $1 million for an emergency management terminal) was temporarily delayed by our customer; we expect to receive and ship this order during 2004.

The Canadian SATCOM segment’s reported costs (both in cost of sales and selling, general and administrative expenses) increased in 2004 compared with 2003 due to the unfavorable translation effect of a stronger Canadian dollar against the U.S. dollar.

SatNet: Our start-up venture to provide DVB-RCS standard hubs and terminals for broadband communications via satellite increased unit sales of all products in 2004 compared with 2003. Our sales volumes for both systems and terminals more than doubled in the first quarter of 2004, compared with the first quarter of 2003. As a result of reaching the $4 million net sales level for the first quarter of 2004, SatNet was very close to achieving breakeven results at the operating income line.

Cost of Sales

Cost of sales, as a percentage of consolidated net sales, was 63% for the first quarter of both 2004 and 2003, although the product mix changed significantly between the two periods. The unfavorable effect on the cost-of-sales percentage of changes at SATCOM (stronger Canadian dollar in 2004) and at EMS Wireless (higher-cost mix of products sold in 2004) were offset by the favorable effect of changes at Space & Technology (productivity gains in 2004) and SatNet (higher sales volume in 2004 to absorb fixed manufacturing costs).

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”), as a percentage of net sales, were 24% and 23% for the first quarter of 2004 and 2003, respectively. The increase in SG&A expenses for the first quarter in 2004, as compared with 2003, related to the foreign currency translation effect of stronger international currencies versus the U.S. dollar for our non-U.S. operations, as well as to expenditures for the introduction of new products for our SATCOM and EMS Wireless segments.

Research and Development Expenses

Research and development expenses (“R&D”) represent the cost of our internally funded efforts. Significant R&D efforts also occur under specific customer orders in the Space & Technology segment and, accordingly, are reflected in cost of sales. Consolidated R&D increased in 2004 compared with 2003, due to planned increases in internally funded R&D efforts to develop new products for LXE, SATCOM and Space & Technology.

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Non-Operating Income (Expense)

Non-operating income for the first quarter of 2004 includes a $938,000 pre-tax gain for the sale of unutilized real estate in Montreal.

Foreign Exchange Gain (Loss)

We recognize foreign exchange gains and losses related to an asset or liability denominated in a foreign currency, and if applicable, any embedded derivatives in contracts denominated in a foreign currency. We use foreign currency forward contracts to reduce our exposure to fluctuations in foreign currency exchange rates.

Most of our Canadian operations’ customer contracts are in U.S. dollars, and foreign exchange gains result from a stronger U.S. dollar against the Canadian dollar. Our Canadian operations also do a significant amount of business in the United Kingdom, and foreign exchange gains result from a stronger Canadian dollar against the British pound.

We also recognize net gains and losses from translation of the LXE European subsidiaries’ short-term intercompany liabilities, payable in U.S. dollars, from the purchase of hardware for resale in Europe. A weaker U.S. dollar against the euro usually results in foreign exchange gains for LXE.

In 2004, the net foreign currency gains of $103,000 in the first quarter were mainly the result of a stronger U.S. dollar against the Canadian dollar. In 2003, there were net foreign currency losses of $37,000 because the U.S. dollar was then weaker against the Canadian dollar.

Interest Expense

Interest expense increased for the first quarter of 2004 compared with the same period in 2003 due to higher interest rates in 2004, the effect of which was partially offset by lower average debt levels that resulted from positive cash flow.

Income Tax Expense

The Company recognized a 32% effective income tax rate in 2004 based upon management’s expected taxable income associated with various tax jurisdictions for the full year compared to 33% for the first quarter of 2003. The Company’s U.S. and European operations have an effective rate of approximately 36%, and our Canadian operations have a much lower effective tax rate due to research-related tax benefits. The effective rate is subject to change during the remainder of the year, as management’s expectations may change for the taxable income associated with various tax jurisdictions.

Discontinued Operations

The first quarter pre-tax results from the Company’s discontinued operations (Space & Technology/Montreal) totaled a $418,000 gain in 2004 compared with a $2.5 million loss in 2003. These improved results reflected a much-improved backlog in 2004, which enabled higher first quarter revenues ($14.8 million in 2004 compared with $8.1 million in 2003). Other favorable factors in 2004 were better contract performance, and accrual of additional

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government incentives for qualified research. To remain profitable throughout the remainder of 2004, these operations must continue to increase their backlog.

Liquidity and Capital Resources

During the first quarter of 2004, net cash provided by continuing operating activities was approximately $6 million, with the most significant factors being the LXE division’s profitable operations and additional long-term service agreements. Another significant source of cash to the Company was proceeds from the exercise of employee stock options. We used most of this positive cash flow to reduce long-term debt by approximately $5 million.

At April 3, 2004, the Company had $15.1 million available for borrowing under its U.S. revolving credit agreement and $575,000 available for borrowing under its Canadian revolving credit agreement. At April 3, 2004, the Company was either in compliance with or had received a bank waiver of compliance relating to all credit agreement covenants.

The Company has agreed to apply the proceeds from the potential sale of its Space & Technology/Montreal division to reduce outstanding indebtedness under its revolving debt facility. During the first quarter of 2004, the Company further amended its Canadian credit agreement, including pricing, as a condition of obtaining a covenant waiver; at current borrowing levels, the annual cost of this facility would increase by approximately $250,000. Although there can be no assurance the Company will be able to successfully refinance or restructure its credit agreements, during 2004, the Company expects to enter into negotiations to refinance or restructure its existing U.S. and Canadian credit agreements, with one of the main objectives being to modify the covenant structure so that quarterly waivers will no longer be needed from its Canadian lender.

The Company expects that capital expenditures for continuing operations in 2004 will range from $9 million to $11 million. These expenditures will be used primarily to purchase equipment that enhances capacity and productivity.

The Company’s material contractual cash commitments and material other commercial commitments have not changed significantly from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2003.

Management believes that cash flows from operations and borrowings available under its credit agreements will provide sufficient liquidity to meet the operating and capital expenditure needs for existing operations during the next twelve months. To fund long-term growth, the Company may consider such measures as public or private offerings of common stock or convertible securities.

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Risk Factors and Forward-Looking Statements

The Company has included forward-looking statements in management’s discussion and analysis of financial condition and results of operations concerning the potential for various businesses and products. Actual results could differ materially from those suggested in any forward-looking statements as a result of a variety of factors. Such factors include, but are not limited to:

•		uncertainties related to identifying a purchaser of the Space & Technology/Montreal division, as well as external market conditions and internal priorities and constraints that could effect a purchaser’s willingness and ability to complete the transaction on terms and timing expected by the Company (in the event a suitable purchaser is not identified, the Space & Technology/Montreal division would, during 2004, be reclassified back into continuing operations, and prior-year financial statements would be restated to reflect that status);
•		economic conditions in the U.S. and abroad and their effect on capital spending in the Company’s principal markets;
•		volatility of foreign exchange rates relative to the U.S. dollar and their effect on purchasing power by international customers, and on the gross margin on products manufactured outside the U.S. but sold mainly to U.S. customers;
•		successful resolution of technical problems, proposed scope changes, or proposed funding changes that may be encountered on contracts;
•		changes in the Company’s consolidated effective income tax rate caused by the extent to which actual taxable earnings in the U.S., Canada and other taxing jurisdictions may vary from expected taxable earnings;
•		successful completion of technological development programs by the Company and their affects of technology that may be developed by, and patent rights that may be obtained by competitors;
•		successful transition of products from development stages to an efficient manufacturing environment;
•		customer response to new products and services, and general conditions in our target markets (such as logistics, PCS/cellular telephony and space-based communications);
•		the availability of financing for satellite data communications systems and for expansion of terrestrial PCS/cellular phone systems;
•		the extent to which terrestrial systems succeed in providing extensive broadband Internet access on a dependable and economical basis;
•		the demand growth for various mobile and high-speed data communications services;
•		the Company’s ability to attract and retain qualified personnel, particularly those with key technical skills; and
•		the availability of sufficient additional credit or other financing, on acceptable terms, to support the Company’s expected growth.

Additional information concerning these and other potential risk factors is included in Item 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

As of April 3, 2004, the Company had the following market risk sensitive instruments (in thousands):

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As of April 3, 2004, the Company also had intercompany accounts that eliminate in consolidation but that are considered market risk sensitive instruments. Short-term due to/(from) the parent, payable/(receivable) by international subsidiaries arising from purchase of the parent’s products for sale and from cash advances to the parent, were as follows:

The Company has foreign currency risks associated with forward contracts as follows (in thousands, except average contract rate):

The Company enters into foreign currency forward contracts in order to mitigate the risks associated with currency fluctuations on future cash flows.

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ITEM 4. Controls and Procedures

The Company has established and maintains disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14). The objective of these controls and procedures is to ensure that information relating to the Company, including its consolidated subsidiaries, and required to be filed by it in reports under the Securities Exchange Act, as amended, is effectively communicated to the Company’s CEO and CFO, and is recorded, processed, summarized and reported on a timely basis.

The CEO and CFO have evaluated the Company’s disclosure controls and procedures as of the end of the period covered in this report. Based upon this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are adequate to accomplish their objective and are functioning effectively.

During the three months ended April 3, 2004, there was no change in our internal control over financial reporting (as defined in Rule 13a – 15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Subsequent to the most recent evaluations by the CEO and CFO, there have been no significant changes in the Company’s internal controls (including corrective actions for significant deficiencies or material weaknesses) or other factors that could significantly affect these internal controls.

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PART II

OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

EMS TECHNOLOGIES, INC.

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